Should You Avoid Term Deposits?

Featured Term Deposit Account

With a UBank Term Deposit Account you will receive a government guarantee on deposits up to $1 million and the choice of a 1, 3, 6, 9 or 12 month term.

• 1 Month: 3.36% p.a.
• 3 Months: 5.61% p.a.
• 4 Months: 5.71% p.a.
• 6 Months: 5.91% p.a.
• 12 Months: 5.41% p.a.
• Minimum Deposit Amount: $1,000

Read the UBank Term Deposit Account terms and conditions

Term deposits are a secure and easy to manage way to invest savings, regardless of the returns being relatively lower than other forms of investments.

Featured Term Deposit Rates

Term Deposit	1 Month	3 Month	4 Month	6 Month	12 Month	24 Month	36 Month	60 Month	Min Deposit
UBank Term Deposit	3.36%	5.61%	5.71%	5.81%	5.41%				$1000
St.George Term Deposit	2.55%	3.25%	5.45%	5.20%	5.10%	5.30%	5.30%	5.80%	$5000
Heritage Bank Term Deposit	3.00%	5.60%	3.40%	5.60%	5.50%	5.55%	5.55%	5.80%	$1000

Why shouldn’t I get a term deposit account?

Term deposits involve fixing an interest rate to apply for a period of time on your investment. Interest rates are at an all time low – why would anybody be interested in fixing their savings at a low rate?

Over the past few months, a new wave of term deposit advertising campaigns has hit Australian media. On the surface, the rates they advertise look highly appealing, especially when you compare them to current interest rates.

What are the current interest rates?

Reserve Bank of Australia Interest Rates

The RBA cash rate is currently 3.00%, or 300 basis points (see all cash rate changes from 1990 here). This is the official rate which financial institutions, lenders and banks are not forced to abide by, but face pressure to reflect.

High Interest Savings Accounts Interest Rates

The current interest rates for regular variable high interest savings accounts is about 2.00-3.50% p.a, with the promotional introductory rate sitting around 4.00% p.a.

To put it straight, it’s not that appealing, but it’s better than nothing.

Term Deposit Interest Rates

Term deposit rates vary depending on the length of time you opt in for, and the amount you invest.

The current rate for term deposits of 1-12 month ranges from 1% p.a. up to 4.50% p.a. The thing is, why go through the effort of a term deposit where your money is locked in when you can use a high interest savings account instead, at the same rate?

What about the longer term deposits where I can earn a higher rate?

Here’s where it gets interesting. The first thing to take notice of when you see a term deposit advertisement, is the interest rate they promote will be for the absolute maximum period, which is commonly 3-5 years.

Interest rates move in cycles depending on the state of the economy. Interest rates are at an all time low in Australia, and will unlikely drop further, if it all.

If you lock in a term deposit at ‘6.00% p.a. for 5 years’ now, it may seem like a wise decision. What you have to take into account though, is where rates will be in say only 2 years.

If variable interest rates increase as a result of the RBA cash rate upping rates (which they undoubtadly will in due time), you’ll be kicking yourself when your investment is locking in at 6.00% when variable rates are dancing above you at 8.50%.

Another disadvantage of fixing your term deposit for years is the Federal Government ‘Bank Deposit Guarantee‘ ends October 12th 2011. Your money may still be sitting in the hands of your bank years after the guarantee has expired.

For the latest information: Official Government Guarantee Scheme

What rates should I fix then?

In this scenario, now is the best time to take advantage of finance where you pay interest, not receive it.

By opting in for a fixed rate on a mortgage and as many necessary loans as possible now, you’ll have the advantage and comfort of paying a low rate even when variable rates have risen in years to come.

Similarly, folks who opted in for a long term fixed deposit rate in early-mid 2008 will currently be enjoying a high competitive rate of up to 10% as they took advantage of moderately high variable rates.

If for whatever reason you happen to still be interested in term deposit accounts, have a glance at Macquarie Bank’s Term Deposit. They have a promotional interest rate of 4.35% p.a. for 3-6 month investments, or 4.50% p.a. for 12 months which is actually fairly competitive.
See the Commonwealth’s Term Deposit as well.

Related posts:

1. Term Deposits – Will It Be Advantageous For You?
2. Investing With Term Deposits – Know The Benefits!
3. Make an each-way bet with term deposits
4. Find Term Deposits Best Rates
5. Best Savings Accounts and Term Deposits
6. Super Funds Investing in Term Deposits
7. Term Deposits – A Great Investment Option